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The assets and liabilities of the banks will have to go on the government's balance sheet. Although this will look like a huge increase in national debt, it is partly an illusion.

Only the funds used to cover the banks' losses will be recorded as longer-term government debt.

Still, the collapse of the UK banking system could ultimately mean that up to £200billion of extra government debt will have to be issued.

Some people are getting very worried about this. They talk of a potential default on our national debt.

They can be safely ignored. £200billion is certainly a lot of money, but it is only 14 per cent of our national income.

It's important to keep things in perspective. Over the last 30 years, government debt in the UK has been between 40pc and 60pc of income.

Adding to it in this recession with the bank bailout could take us up to 70 per cent or even 80 per cent of national income, or a trillion pounds.

This is around the same level as we had in the late 1960s and a third of the level at the end of the Second World War.

The burden of that debt can be eroded by inflation, or taxes will have to be raised. One way or the other, it will be dealt with.

We are not alone in having to bail out our banks, and actually the UK started in a better position than most large countries. The US has at least as big a problem with its banks as we do, and it entered the recession with government debt relating to national income about 10 per cent higher.

So did the Germans and the French. Japanese government debt is 170 per cent of national income, and nobody really thinks any of these countries will default. None of them has a history of doing so.

Neither, for that matter, has the UK. We haven't reneged on our government debt since the Bank of England was set up in 1694 and we are certainly not likely to now.

That does not mean all this borrowing is painless.

As governments flood the market with more debt, they will have to pay higher interest rates.

This will raise the burden for our children, and strengthen the case for raising taxes soon after the recession is over.

And this will not be the only burden stemming from the financial crisis.

Better regulation and more caution from borrowers will mean house prices will be lower in real terms. House prices were at least 30 per cent overvalued by 2008 and they will fall by that much. People will feel poorer.

Saving as a share of income will rise as a result. It will probably be 2 per cent to 3 per cent higher than it would have been without the crash.

This is probably for the best, as we were not saving enough money for our retirement.

Stronger regulation of the financial sector is an inevitable outcome of the recession, and it has already begun.

The financial sector in the UK will look smaller and less profitable. It rose from around 6 per cent of GDP in 2000 to 8 per cent in 2007.

It is likely to drop back to 6 per cent of GDP quite quickly. Fee incomes will be lower, loans less generous and bonuses will be reduced.

This will have as much impact on our incomes as the cost of the bank bailout.